Fund Profile

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Hipgnosis Songs. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
SONG has continued to deliver, yet now trades at an attractive discount...
Overview

Hipgnosis Songs (SONG) stole a significant lead over many corporates and private equity fund managers, having in 2018 created a new category of listed fund to invest in songwriter royalties. As was their aim at the start, SONG’s manager has built a large portfolio of songs, many of which are of ‘great cultural importance’. SONG now has a portfolio ‘fair value’ of c. £2.5bn, comprising 146 Catalogues and 65,413 Songs. With every significant acquisition made by SONG, by the manager’s new partner Blackstone or by other private equity or record labels, it is arguably becoming increasingly recognised as an alternative asset class.

SONG’s manager aims to provide total returns over the medium to long term of greater than 10%, with a high dividend yield and the prospect of capital growth. Underlying performance over the six months to 30/09/2021 saw NAV total returns of 4.63%, taking the NAV total return since IPO to 46.7%. SONG has performed strongly in absolute and relative terms.

Whilst income over the six months to 30/09/2021 has been affected by a fall in performance income, this was felt most in the younger catalogues. Older, more evergreen catalogues nearly made up for the fall in performance earnings with strong streaming earnings. Overall, catalogue revenues have fallen, but the dividend is still covered (see Dividend).

SONG’s success has allowed some significant senior management hires. The resulting breadth and depth of management resources, not to mention the partnership with Blackstone, should enable more active and successful management. The team continue to highlight synchronisation wins as evidence of added value. Over the past 18 months, synchronisation income has increased from 9% (12 months to 31/03/2020) to 16% of revenues (six months to 30/09/2021).

Analyst's View

SONG’s board have committed not to issue further shares until after the publication of the March 2022 NAV (expected in June or July). With the gearing facility largely drawn down, we, therefore expect that the portfolio will remain relatively static until then.

Now a significant and impressive portfolio has been built up, the managers have a clear opportunity to sweat the portfolio and drive returns for shareholders. As we discuss in Performance, we believe that growth in music industry revenues from streaming, a higher share of royalties being paid to writers, active management from the Hipgnosis team, and valuation increases if the discount rate falls from the current rate of 8.5% are all potential sources of future NAV returns.

Whilst this remains a specialist area of investment and therefore does represent something of a leap of faith for generalist investors, the current discount to NAV of 7.5% perhaps provides something of a margin of safety. We believe it is notable that the NAV has generally shown low correlation to equity markets. More latterly, SONG’s shares have provided a degree of insulation to market volatility, but the discount has widened. We identify potential catalysts that might lead to a re-rating in Discount. This may offer an opportunity for investors willing to embrace this new alternative investment area. The recent partnership with Blackstone further supports the argument that this is an area of investment that is set to become more mainstream.

bull bear
Attractive yield, with prospect of income and capital growth, and trading on a wide discount currently
Unfamiliar and illiquid asset class, meaning the portfolio is difficult to analyse, even as disclosure improves
NAV returns likely to be uncorrelated with equity and bond markets
Gearing (currently c. 28% of NAV) can exacerbate downside
Opportunity for capital growth from industry trends as well as active management
Possibility that current positive industry trends will reserve
Continue to Portfolio

Fund History

18 Feb 2022 Fund Analysis
SONG has continued to deliver, yet now trades at an attractive discount...
12 Jan 2022 Bargain hunt
We survey the discount opportunities in the market and update on the performance of our Discounted Opportunities Portfolio…
30 Dec 2021 Great expectations
As the last of the mince pies wilts in the fridge, topped with a generous helping of stilton, the Kepler Trust Intelligence team stick a finger in the air and point toward their top picks for the year ahead…
21 Jul 2021 Every which way but loose
We break down the AIC Flexible sector into more useful segments…
20 Jul 2021 Fund Analysis
2020 has proven SONG’s resilience, with potential for a re-rating…
19 May 2021 The complexity premium
We examine the idea that extra returns can be obtained from buying investments which are perceived to be more complex by most investors...
31 Mar 2021 Fund Analysis
With additional portfolio disclosures recently made, SONG looks set to benefit from tailwinds in the music industry…
24 Feb 2021 Dire Straits or Money for Nothing?
As discounts reach historically narrow levels across the board – our analysts debate whether a premium is a price worth paying…
30 Nov 2020 Flash update: Hipgnosis Songs Fund
SONG NAV moves up, and continues to offer potential income and capital growth…
25 Jun 2020 Fund Analysis
SONG owns and manages songwriter royalties, aiming to deliver a high income and capital growth...
09 Oct 2019 Bond proxy?
As a replacement or complement for longer duration bonds, listed alternative income funds look an interesting, well… alternative..
25 Sep 2019 One-stop shop: how multi-asset trusts offer superior diversification
Investment trusts are particular suited to this mode of investing. We examine their advantages over open-ended funds and highlight the trusts which do it well…
19 Sep 2019 Fund Analysis
SONG owns and manages songwriter royalties, aiming to deliver a high income and capital growth...
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